Dive Brief:
- New research supports the claim that an increase in housing supply slows the growth of rent in a given region, and sometimes even reduces rents in the surrounding area, according to an analysis by three faculty directors at New York University’s Furman Center.
- Another positive effect of new market-rate housing, according to this study, is the “chain effect” — the movement of local residents into new units, which frees up older and less expensive units for other people to move into.
- However, it can be difficult to gauge how new housing affects prices at the neighborhood level, especially if rents are already rising in a given area for other reasons, such as a growing desire to live in a “hip” neighborhood or an employer or attraction nearby. This “amenity effect” competes with the “supply effect,” influencing overall rent growth.
Dive Insight:
The New York University report responds to a series of arguments against new supply as a solution to a lack of affordable housing, including concerns that new market-rate residences lead to gentrification and displacement in the surrounding area.
To do so, it cites a variety of studies of city-level trends across the globe. For instance, a study that covered the effects of a zoning change and large-scale increase in housing in Auckland, New Zealand, found that, after six years, rents for three-bedroom units in Auckland were between 26% and 33% lower than rents for similar units in comparable urban areas.
However, the effects of zoning changes on new housing supply are not always so drastic.
“Zoning changes, at least in the short term, may not always result in new construction and will inevitably yield far less new construction than the full new capacity added by the zoning change,” the report reads. “Studies generally [find] that while relaxing zoning reduces rents citywide, the effects are modest, and effects on neighborhood rents are mixed.”
New housing production also cannot make housing affordable for all types of renters. To fill gaps, subsidies and affordable housing programs are still necessary. The effects of tenant protections and rent control policies on supply will need more study, according to the report.
As for gentrification, the studies cited find that newer construction is followed by a growing share of wealthier and more educated households in a given neighborhood. However, evidence of out-migration related to new construction is inconclusive. In the end, based on causal evidence, the report suggests that new construction either mitigates or slightly elevates displacement.
“As the research continues to show how important adding supply is to ensuring economically diverse, resilient and thriving cities,” the report said, “it also is critical to move beyond general opposition to new supply to a more constructive discussion about how best to foster new construction that helps make housing affordable while avoiding or mitigating potential harms to particular neighborhoods or people.”
